Is Alibaba’s cave full of treasure – or counterfeit?

May 05, 2016: Alibaba Q1 2016 results show a big jump in profits – up 39 percent year-on-year to US$3.75 billion. But David Jinks, head of Research at e-commerce delivery company Fastlane International, cautions there are still a number of issues to consider before investors fall for Alibaba’s spell - including its ongoing battle with counterfeit goods:

Alibaba – a poor woodcutter - took on a gang of thieves and won in the old legend. Today, alas, there’s no magic phrase like “Open Sesame” that can thwart counterfeiters selling through Alibaba; but Jack Ma and the Alibaba team have responded to complaints from western manufacturers and the US Trade Representative very seriously.

Alibaba is now stamping out the selling of counterfeit goods on its popular subsidiary sites such as Taobao (China’s largest online marketplace). Additionally, the company has just hired Apple’s former investigator, Matthew Bassiur, to help. It’s a tough job and one that could impact on Alibaba’s domestic profits - though it’s necessary to ensure the company doesn’t end up on a U.S. blacklist of sites.

Its second key battle is to reduce delivery costs.

Alibaba is planning to invest further in Singapore Post, but that deal has been slower to complete than expected and was recently postponed again from April 07 to May 31.

Both companies are still in the process of fulfilling a number of conditions, according to SingPost. The idea is that the e-commerce giant will hold a total 14.51 percent stake in SingPost.

One of the reasons SingPost is so attractive is because of its subsidiary, Quantium Solutions International. QSI provides end-to-end ecommerce fulfillment across the Asia Pacific region. QSI will become the joint venture vehicle of SingPost and Alibaba.

SingPost/QSI will then look after everything from setting up websites to managing inventories and transportation, operating across over 50 distribution centres across at least 18 countries -- including major e-commerce markets in the U.S., Europe, China and the rest of the Asia Pacific region.

A logistics hub in the city-state costing US$132 million is scheduled for completion this year. Once in operation, it will consolidate e-commerce deliveries from across the world.

Amazon shares have come good partly because of its bold investment in logistics. Alibaba needs similar development of its own fulfillment operation to achieve the same long-term results.

There’s been lots of good news from Alibaba recently as its gross merchandise volume (GMV) surpassed US$463 billion dollars in under a year. Many investors like its investment in Groupon and also the company is set to gain from the potential IPO of its Ant Financial subsidiary.

But it needs to overcome the issue of counterfeits and to ensure its logistics plans come to fruition before Alibaba can really claim to be a cave full of treasures.

- Fastlane International partners with DHL, UPS and DPD to provide a range of parcel delivery services to over 220 countries worldwide.